The San Francisco Apartment Association and Coalition for Better Housing are preparing to file a federal lawsuit today which seeks to overturn the newly adopted and accelerated city law which requires landlords in San Francisco who invoke the Ellis Act to pay evicted tenants an upfront sum equal to the difference between their current rent and a similar market rate unit over the course of two years.

The lawyers from the Pacific Legal Foundation said they will file the case in U.S. District Court in San Francisco on behalf of homeowners Daniel and Maria Levin, a married couple who own a two-unit house on Lombard Street. The couple live in the upper unit and want to occupy the lower unit, where a renter lives. They would have to pay $117,000 after using the Ellis Act to displace the building’s tenant, PLF said.

While California’s Ellis Act allows landlords to withdraw their properties from the rental market, for whatever reason, it also provides local governments with the power “to mitigate any adverse impacts on persons displaced by reason of the withdrawal.” As such, San Francisco’s new law was carefully positioned as a means by which “to better mitigate the adverse impacts for people displace by Ellis Act evictions” rather than a means by which to discourage the legal use of the Ellis Act itself.

Prior to the passage of the new legislation, the relocation assistance due to tenants evicted by way of the Ellis Act in San Francisco had been capped at $15,795 per unit plus $3,510 per disabled or elderly tenant.

Comments from “Plugged-In” Readers

When a gas station gets torn down and turned into condos the gas station owner has to pay all of his customers a ‘goodbye payment.’ I mean, they might have to pay more for gas elsewhere, no?

When a farmer sells his land to be turned into a subdivision, he has to give all of his vegetable buyers a ‘farewell payment.’ Because, they might have to go buy vegetables somewhere else and the price may be higher…

When the city installs parking meters where there haven’t been meters before, everyone in the neighborhood gets a dividend check right? Because a good deal gets absorbed too readily by the market, and so everyone who had the good parking deal deserves to be compensated. Right?

Here here! Looking forward to this egregious taking of property being overturned in court. As an owner of a 2 unit building, the thought of having to pay a six figure buyout to a tenant whose life i have been subsidizing for years makes my stomach turn.

If you know that the last resort of the landlord is an Ellis that will cost 100K+ per unit AND the stigma of an eviction, then the starting point of any negotiation will be higher than the arbitrary Ellis compensation amount.

This is all that it is really: a shakedown vaguely disguised under the cloak of “social justice”. Cue the Noe Street tenant who held out saying “I won’t budge” then took the cash and moved to a warm and dry climate. Sucker evictionfreeSF!

pity the rentier. i too am an owner of a two unit building. you made a deal to be paid a certain amount of rent understanding full well the laws under which you made the deal. your asset has probably increased astronomically during the tenure of your oppressed ownership despite your not having done a damn thing to influence the overall market. suck it up you greedy ass.

We’ll see you in 10, 15, 20 years when the sticky tenants are starting to eat on your kids’ college funds. Or maybe you do not have kids. Or maybe you do not need the money. Or maybe you’re not an actual landlord. The word “Greedy” is sure sign you are probably not who you say you are.

I would kindly suggest you refrain from telling people what they need and what they do not need. Telling people that they actually do not need the money, or that they should “suck it up”. What do you know about the situation of other landlords (again if you are an actual landlord) that can make you look down on them?

I must be a traitor to my class since I’ve owned my place for 15 years with a variety of tenants and now have a couple of young kids in the SFUSD.

Here’s the thing though…I bought my place knowing I had a tenant protected under San Francisco’s rent control ordinance. I calculated whether I could afford the mortgage knowing what that tenant was paying for the rent controlled unit and what I could legally raise the rent to because of 11 years of foregone increases. After the tenant moved out and I made improvements to the apartment I charged the next tenant a higher rate that was nevertheless mutually agreeable. Wash, rinse, repeat. Now my rental income is about 4 times when I started as is the value of my asset. And just because I *could* get a higher rental rate if the tenant I signed a contract with (without duress) were to leave doesn’t mean I am subsidizing her. It just means that I could make more money

As for the Levins, a brief bit of public records research shows that the couple bought this property in 2008 for 1.9 million at which time I’m sure they knew they had tenants. We also see that the Levins took out a 1.2 million mortgage on this Lombard building (owned not by them, but by their trust) at the beginning of the year and since their tenant’s rent was likely part of the income basis for the loan I’ll assume that BofA found their income sufficient. Lastly, Mr. Levin has also owned a building on Filbert St. since 2005 that he apparently doesn’t occupy.

Now the Levins say they want to take the Lombard building out of San Francisco’s rental housing stock. It will inevitably increase the value of their asset. They are free to do that. They’ll only have to compensate the people harmed by their actions by reducing their profits. Like I said earlier. Boo fucking hoo.

Harmed? Say you are given free food all your life. Then someone tells you you now have to pay for what you consume. For me it is a return to reality. In the parallel universe aka SF this is called harm. At some point reality catches up on you.
About your own case you have maybe managed to find a way to follow market rent. Good for you. I have found out from experience that this is very hard to accomplish without breaking a few laws. One of them would be discrimination based on age. Would you rent to a 59 year old single woman? Once she is on SS there is no way she can move out of cheap housing. You probably used discrimination implicitly. I didn’t want to do that and chose corporate rentals instead.

Thanks for throwing a little cold water on the usual SS rentier weepfest. I am in the same position as you. I own a couple of units, bought with full awareness of rent control. Make good money on em thanks to recent techie rent run ups.

I do think the annual rent increase should be increased to something slightly higher than the inflation rate, though. Over the very long haul, 60 percent of inflation will start to hurt.

Exactly. The 60% of CPI is the most significant problem with rent control. Over the long term it creates an imbalance in the business model. And as much as the rules allow for pass-throughs, this is not practical for the many small landlords in SF.

IMO, tenants should look to support laws that make it easy for the small landlords to provide housing. As it is, SF has decided that we need to crush small landlords In favor of large corporations, not unlike many of changes taking place in other industries.

RforRC, you’re being ridiculous. Of course you’re happy, cuz you have MARKET RATE PAYING TENANTS! I’m sure you’re thrilled to rent to well paying people. How about offering your unit to a middle income, going nowhere, 59 yo, would you do that?

So don’t give me this faux-liberal “I’m for RC cause it helps the community” BS.

Now as for me, I actually don’t mind RC either, because it leads to higher marginal rents. I’m very focused on only renting to people that aren’t RC needy and need to or plan to hoard the unit. I ensure turn over by renting to the young and well off. IMO this city’s inane RC laws further discourage LL’s from renting to anyone that smells of need. So I’m benefiting from this warped system, just like you. Except that I’m honest about it. So thanks bored of supervisors, for making me rich! Keep restricting and discouraging landlords. The ones who are smart enough to work with your encumbrances are making bank.

Just be honest about it, and don’t try to cloak it in a rent-control-is-good delusion. Be honest…you can do it…it cathartic!

What is your tax rate? You’ve been taking the State of California for years by not having your tax rate increased since the time you bought your property. Why do you have the expectation of having a big break on your taxes and still be able to charge whatever price you’d like on your rent? Your inability to take in the full picture makes my stomach turn.

Well, as the article implies, cities can’t pass laws that that are in conflict with the Ellis Act (which is a state law) and, at some point, requiring large payments to tenants will make landlords unable to exercise their rights under the Ellis Act. Does this law meet that threshold? The courts will decide but given the rhetoric of the supporters of the law, there is definitely a case to be made.

IANAL, but the Ellis eviction law is there so that people can just get out of the landlord business. It has existed for decades because no business owner should be forced to keep exercising his occupation if he doesn’t want to.

The new subsidy is a punishing tax against leaving the rental business, whatever the underlying reasons. I think you could make the case that adding a too big price to something you are entitled to is a way to prevent people from exercising their right. I think this would be one way to present this. Again IANAL.

In terms of business, this goes counter to many principles of economics and freedom to do business.

Say you have a matchbox factory and you are making matchboxes for 20c and selling them for 10c. You cannot run this business for very long. You can freely decide to close shop and stop producing matchboxes, right? What if the government said you have to pay a “going out of business” fee, whoever the recipient might be? What if this fee is so high that it would be better to just keep producing matchboxes at a 50% loss?

This is the issue there: forcing landlords to keep doing something they do not want to do through a punitive fee/tax. It’s called confiscation and it doesn’t fit at all with the capitalist principles that we enjoy in America.

I understand the love many tenants have for rent control. But they have to understand it’s a free ride at the expense of someone else. And since there’s absolutely no means testing whatsoever, it is an unjust subsidy. Let’s develop REAL subsidized housing. The French do it very well. We should learn from them.

The new subsidy is a punishing tax against leaving the rental business, whatever the underlying reasons.

The clause “…whatever the underlying reasons” is doing a lot of rhetorical lifting here.

I don’t expect anybody on a site dedicated to bellyaching amateur landlords and real estate agents to understand or agree with this, but the city has the ability and the right to mitigate the impact of gentrification on existing residents. And the payments to evicted tenants are a valid way to reduce the impact of situations where a landlord buys a building, uses the Ellis Act to get rid of tenants and then flip the units to TICs or what have you. If the court trying this actually gets to the merits of the case, they’ll understand these mandated payments as essentially a tax on regulatory arbitrage.

That all said, I expect that this case will go nowhere slowly. The Takings Clause of the Fifth Amendment, if that’s what the suit is based on, doesn’t trump reasonable local regulations, there’s lots of case law on that. But I am also not a lawyer.

Not to mention the ridiculous idea that somebody that isn’t making enough money to justify the expenses of continued renting has the cash available to pay somebody he has been subsidizing for years over $100,000.

Not every Ellis Act is so a building can be sold for profit. In our case we Ellis Acted the building so our family could afford to stay in San Francisco. Under what reasoning should we pay the tenants over $400K for the right to live in our own property?

Not to mention the ridiculous idea that somebody that isn’t making enough money to justify the expenses of continued renting has the cash available to pay somebody he has been subsidizing for years over $100,000.

You didn’t read the article that was linked-to above.

From paragraph seven of that piece:

Landlords can apply for an exemption to the higher relocation payments if they can prove a financial hardship.

First, I don’t see any principled reason for why a land owner should have to compensate someone else n the event that they decide to move into or sell their own home. If anything, the former renter should be grateful for the previous years of rent-controlled living.

Putting that aside, I’m not all that comforted by the fact that the size of penalty is at the discretion of SF officials. Do you have any data to suggest that 100K+ penalties are generally reduced by the city to something more reasonable?

The San Francisco Board of Supervisors discussed the Campos rent differential payment at length the prior making it law. The law has a provision which addresses situations like this. The landlords need to make a case with the rent board that this payment creates an undue hardship. Given the extreme dollar amount, I would venture to say that it would likely be lowered considerably. I might add that the Apartment Association went out and found an unusually extreme case. The typical relocation assistance payment will be no where near this amount. I know of two that are in the range of $16,000, and even then the landlord can plead his case.

Why should the landlord have to justify her personal case for not paying a direct subsidy from one individual to another?

If the city thinks Ellis-displaced tenants deserve compensation, then the city should be footing the bill out of our collective tax resources. If as a city we agree people whose leases are below market based on tenure (not financial need) deserve compensation, let’s share that burden as a community. If we all benefit from low rents for an arbitrary group, we should all bear the cost.

Let’s vote on a city-wide sales tax to support displaced rent control tenants. Would that fly?

If the city thinks Ellis-displaced tenants deserve compensation, then the city should be footing the bill out of our collective tax resources.

With the approach you’re advocating, the the benefits of displacement are privatized, while the costs are socialized. So this isn’t even a serious proposal, or you haven’t though it through, or both.

In the more usual scenario, someone, and more and more this is someone who doesn’t even live in S.F. will buy a building, Ellis it to get tenants out, and then sit on the empty building for some amount of time, and then re-sell it for a capital gain, where the gain is just due to overall growth in S.F. and the unusual amount of and growth in demand for rental property. The owner doesn’t even have to do anything except move money around and wait for it to appreciate.

The city can and does have the ability in cases like this to mitigate the costs of the displacement, and the people best able to pay for that displacement are the people benefiting from it financially, not everyone in the city, the overwhelming majority of which are not party to the transaction.

I agree with muskrat that the Apartment Association went out of their way to find an unusually sympathetic complainant.

Nice try Brahma. All developed countries have a housing subsidy of some sort. How would you call Section 8 housing? My birth country has renter subsidy. How would you call food stamps? People will buy food from private company with a subsidy.

Nope, you can’t recycle a valid “occupy” line there.

Property was partially seized through rent control. Now people want to get out of this taking of property. They are asked to pay a tax. That’s a double-taking.

Sympathetic, but not unusual. Most of the small rental buildings in SF are owned by hardworking people with similar challenges. Tenant extremists forget this fact in their zeal to attack the large landowners.

@ Brahma. “With the approach you’re advocating, the benefits of displacement are privatized, while the costs are socialized”

Quite the contrary. The benefits of keeping long-tenured tenants in place are currently shared by the entire community. People who have been residents for a long time build up relationships and hopefully care about their neighborhoods. These benefits accrue to everyone, at least if you follow the logic that the status quo is beneficial for everyone involved. We should all have to pay to continue these benefits, not some few individuals who are trapped into losing money.

Prices do, after all, go down. Even in your example, had an out of town landlord purchased a building in ’07 and then emptied it, he/she would be losing money in 2010. The owner bears the costs of these decisions.

If the city wants to keep neighborhoods more stable with less population turnover, let’s all agree that is a good thing and let’s all pay for it together.

“In the more usual scenario, someone, and more and more this is someone who doesn’t even live in S.F. will buy a building, Ellis it to get tenants out, and then sit on the empty building for some amount of time, and then re-sell it for a capital gain…”

1- This is a high risk strategy as you’re strictly relying on market appreciation.
2- most investors can’t afford to leave a bldg empty for 5+ years. Lots of expenses pile up, not to mention the Ellis fees.

I was at one of the last hearings. I spoke at one. Comrade Campos ignored every voice of reason. He is playing activist. He is a scumbag. He refused to draft equity into the law when he chose to include means testing for landlords but refused to include a likewise standard for tenants. The law was drafted with inherent bias since he refused to apply counterbalancing standard for tenants.

When a legislator refuses to balance the equations he forces on others he is simply a thief…. taking from one person and giving to another.

Leaders bring people together. Comrade Campos is dividing the idiots for personal political benefit. He is an evil man.

I recently learned that a friend of mine, making low six figures, has been occupying a rent-controlled apartment (nice couple for landlords, barely making ends meet) for many years, paying in the hundreds of dollars for an apartment that would cost thousands to rent in today’s market. Here’s a person who could afford to pay much more, but why would he? All that extra cash goes to fun and games, savings, vacations, retirement, etc. I’m not blaming him, this is human nature – take the profitable path of least resistance. Anyway, without means testing, the rent control laws are simply a farce.

Couldn’t agree more with you. And when that Commie loses to…David Chiu, then his pals at City Hall will find him a nice six-figure job that he can suck from for life, if necessary. Just like…Bevan Dufty, who’s nothing more than another public sector pig at the trough. BTW, I will be raising the rent on one of my family’s non-rent-controlled houses up to market so that when the time comes to sell it (we’ve owned it since 1959) the left wing [woman] who lives there can deal with the consequences of her political beliefs. And as for the rent-controlled tenant in another house (who is a multi-millionaire long-term employee of a big brokerage here in SF), don’t even think of asking for a paint job.

Bravo!
Bring it on…as compensation must be reasonable…and laws are not meant to provide for legal entitlement for anyone to live in SF. West Oakland, Richmond are local options…if not, perhaps try Detroit.

If in fact the amount of direct subsidy that a LL is giving to a tenant due to Rent Control can be quantified, would it not be safe to say that a rent controlled tenant is receiving Imputed income? Thus giving a LL a legitimate tax write off due to legal mandate? Where’s the quid pro quo in this situation? I would love to see this idea take flight in a court of law. That way we can all be happy.

But I see the reason behind the protections given how prices balloon every few years in San Francisco ,
The idea to provide safeguards for tenants when it comes to inflated housing costs due to real estate speculation is not a bad thing , I think of this as to how we currently look at any property and how it is zoned , be it for its height, and what it can be used for. As for the issues that come with renting , there are also a lot of benefits , and any capital costs can be passed on ,

So my take on this , if your not wanting to deal with the issues of renting , then do not buy rental property , its the same issue with buying retail property , and then discovering that you can not rent the property out to just any company you want

Landlording is a business. Say someone has a mon&pop juice bar that gets poor sales, and a Jamba Juice is a block away doing similar business. Do you want the government to subsidize the mom&pop business for the sole reason they do not have pockets as deep as Jamba Juice?

First, why would someone who cannot afford to live somewhere would be entitled to live there at someone else’s expense? Easy question. Can you answer it?

Second, what about long term landlords who purchased before rent control was enacted? What about their heirs? Someone paid for property with expectations of income. Laws changed, affecting both rent and value. How can we justify this?

If you can answer these 2 questions without invoking some sort of “social justice” argument, congrats. There’s no social justice to system that 1) doesn’t share the cost among all tax payers and 2) doesn’t do even basic means testing.

The current market is driven by cash. It has a solid footing. If it were pure speculation you would have to wait for the music to stop to see prices go back to normal.

SF has gotten more expensive for many factors. Some people didn’t adjust and are losing out. If they could rent at the time, they could probably buy. Actually this is the typical America way. Rent, save some money, do a mortgage and buy, then if prices go up or down, it’s the same for you.

Now renters in SF think they live in another (read: less capitalistic) country.

Plus you failed on all questions and invoked the fairness clause: people vs speculators, that I can interpret as a call for social justice. Apart from “let’s help them just because… whatever” you are not denying you want a social justice program done with OPM.

It is not a bad thing to have safeguards in place to protect build , and bust situations ,
That is why SF has a building pool for Commercial Space that gets additions each year.
Its in part why the retail mix is managed for each neighborhood
It is why even building residential construction is managed

That all said , San Francisco could use another 2-3 Million Commercial Space added to the pool , and I would like to see SF double its allowed height limits for the SOMA, & the Downtown

Safeguards are a good thing. What I am saying is that the taxpayer/voter should pay for what it wants.

I did a back-of-the-envelope calculation a few months back on the $ amount of the subsidy provided by private landlords to rent controlled tenants. It was in the range of 3~4 BILLION USD annually. This cost is too big to be footed by the taxpayer, therefore we let private landlords pay for it through rent attrition. That’s an easy way out for renter/voters: pick someone you do you not care about, make him pay, give him no way out. What country is this again?

Bro, the main reason rents are so high in SF is due to rent control! So many units are unavailable as they are being hoarded by loser-renters. Supply is extremely restricted, hence rents on newly vacant units are through the roof.

It’s not social justice. It’s giving an entitlement to people who game the system.

OTOH saavy landlords also know how to game they system (i.e. never renting to anyone who smells like they will be long termers). For every action there is an equal and opposite reaction.

Your comment assumes that all people have bought after rent control was created. Some people have pre-1978 property and have been living under communism since then. Comrades Campos & Kim (both carpetbaggers who moved to SF for political aspirations) thinks like that – their assumptions are always right.

i think they should have to pay the tenant exactly $0 to move so they can live in the property they OWN. In fact, the renter should be paying the landlord for anything beyond reasonable wear and tear. what a backwards and regressive policy this is to have a renter to leave YOUR house

When I moved here in 1980, I went to the corner grocery store and paid $1 for a gallon of milk. Now they want $5. The owners of that corner store should be forced to sell me milk at $1 a gallon for the rest of my life.

And if they ever want to close that store, they need to pay me a lifetime milk subsidy.

Excellent example. Milk prices have been regulated by California State government since 1935 and by the federal government since 1937 (namelink). Part of the rationale has been to ensure an adequate supply for consumers, especially children, and a predictable price for producers.

Some things are considered too important by the people and their representatives to be left to the market.

Jake, you are making the case for most anti-rent-control posters here.

In the very pertinent milk example, you are failing to omit one BIG difference: the government is keeping Milk prices low through massive subsidies to Milk producers. Now that’s an idea! Let’s pay landlords to keep prices low!

You misread the 1990 price for milk from the chart on your link page. The price it actually shows is $2 per gallon in 1990.

Which means milk prices increased 75% ($2 to $3.5) in 1990-2013. That is just slightly below the CPI for the same period, which was 78%.

Not sure what you expect to learn comparing national milk prices to local san francisco residential property rents, but the US Census data shows SF median rent increased 130% from 1990 to 2012 ($653 to $1512). That is based on the actual rents paid, not the asking rent for vacant units. The margin of error is only 2.5% on those numbers, so even with the max MOE it is at least a 120% increase.

At least since 1990, SF median rent has more than doubled and has increased faster than either the CPI or national milk prices. Good thing your tenants don’t pay rent in wheels of cheese.

I wonder if San Francisco rental properties also had a higher capital appreciation rate over the same time than US dairy farms.

Not sure if I should feel happy for the relative good fortune of SF landlords or unhappy for the plight of the American dairy farmer.

Average rents, you are correct. But someone who has been in the same rent controlled unit will pay less than twice what he started paying when he moved in. In sf you have tenants paying $1 when others are paying $4 for the same property. To be true the new tenant paying $4 will probably wealthier since he has to qualify for the lease when the long term tenant had the possibility to “free wheel” his life.

It all boils down to an issue of personal responsibility. People who benefit from rent control do not have to buy their home to get stability. Stability is given to you for nothing in return. The only thing you will have to fight for is re electing someone who will keep the gravy train rolling. Easy:pick the most lefty. To hell if he is a complete economical idiot like comrade Campesino.

Median isn’t the same as average, but for rents the long term trends are similar.

As of the 2012 Census ACS, less than 17% of SF households have been in their current home since before 1990, and more than two-thirds moved in from 2000 on. Rents have been fairly high in SF since the dotcom boom, specifically median rent for new contracts doubled between 1994 and 2000 according to sfrb.

And if you think somehow the prevalence of rent control in SF is causing people to stay in their homes longer, then please explain why only 2% more of SF residents have been in their homes since 1990 than for CA as a whole. That’s only about 7k SF households and includes owners as well as renters.

Of course your reasoning applies just as well to longtime CA property owners and their property taxes. There are more than 13 million residential units in CA. All of them benefit from Pop 13, while only about 1 million are under rent control. Howard Jarvis Taxpayers Foundation estimates $528 Billion cost of Prop 13. There’s a tab that in part has been picked up by increasing more regressive taxes like the sales tax which was at 6% in CA when Prop 13 passed.

You want people to take personal responsibility, well ok then, how about property owners taking personal responsibility for contracts they willingly signed and profited from, instead of whining endlessly like little children over spilled milk.

You do understand this is a new requirement, don’t you? I don’t think that any landlord could foresee the future tenant relocation payments when they signed their contract.

Also, although I will grant you that there is plenty of whining on Socketsite by landlords, the tenants rights organizations do far more whining and have both our local politicians and the media to support their cause. How about tenants just sucking it up and complying with the contract they signed instead of endlessly tinkering with the law to benefit themselves.

The rest of CA is 70% owner and due to prop 13, people will tend to stay put in order to keep their low tax entitlement. This is as wrong as rent control. Entitlements to stay in your home is OK if the community were static, but we are a magnet and are far from being static. Newcomers have to make do with much less than the locals, for much more money.

EcceMoron’s example is entirely apt. The milk seller is supported by a government subsidy, not forced to sell at a price enshrined decades in the past.

I don’t think any landlords with rent controlled tenants would put up a big fight if the city decided to start subsidizing the rent of the otherwise rent-controlled tenants. The city controller has provided an equation to calculate the market value of an apartment rent.

Can you imagine if, instead of the gov’t giving out food stamps, they just told someone “Here’s the Smith family. They can’t afford food, so you’ll be paying for their food from now on.” Do that with all of the tens of millions of people who get food stamps – have them assigned to one person who will subsidize them. Then see how friendly everyone is towards each other.

There’s a reason subsidies are spread out across the board, and borne by all. It avoids the SF landlord-tenant relationship in which otherwise nice people come to despise each other.

^ They are arguing a taking under the US Constitution. Aside from that, instead of this policy being argued in multiple jurisdictions with inconsistent results, any Federal Court decision will be precedent for all lower courts. Smart move on the part of plaintiffs. Their chances are winning must be pretty high.

Correct that. The chances of winning under state law are extremely low. As for the constitutional “taking” argument that seems really unlikely based on existing law unless they think they’ll be a test case for the US Supreme Court…which is also unlikely….but you never know, I guess.

How ironic if David Campos created the scenario where the Supreme Court finally reviews the unconstitutionality of rent control. What a footnote for the misguided, ivory-tower educated zealot, whose family scraped and fought to bring him to a country built on private property rights.

SF rent control laws have evolved to the point where it makes most sense for landlords of pre-1979 buildings to sell to families or the highest bidder. Currently no one would buy a pre-1979 building as rental property — the numbers do not justify it. The more the city meddles, the higher the costs, thus only large developers have the patience and deep pockets to create more rental housing. And that means more micro-units on the horizon. Reap what you sow.

I recently paid 120k to have a tenant who was paying 1200 a month move out of a 4 bedroom apartment in pacific heights. Its expensive, yes- But its also one of the best investments you can make. I imagine the rent will go to 7500+ once done, making this purchase have a pay off rate in 3 years. Where else can you make 33% on your money per year?

As a voluntary choice that you and your tenant made, that seems perfectly fair.

What if you wanted to have your family move into that same apartment in Pac Heights and you were forced to pay them out? Assuming your rent numbers ($7,500 current vs $1,200 controlled) matched the city payout chart, you would have been legally obliged to pay them ($7,500 – $1,200) * 24 months = $151,200. For an apartment that you own and want to move your family into.

I think your calculations are wrong. The current rent is multiplied by the “rent differential multiplier”, which is 0 for rents established after 2013. So the payout would be $5265.10 per tenant.

And even if it were $151,000 that would be fine with me. I knew the law when I bought rental property in San Francisco, I knew the property was subject to rent control. My property has appreciated more than 100% in the last 10 years, no one should feel sorry for me.

Hi NVJ – You did not tell us in what year your old tenant’s lease was signed. That input is required to determine the new relocation payment factor. I was supposing that you might otherwise have to use the Ellis Act to get the tenant to leave. Perhaps this was unclear from my post.

If you bought your property 10 years ago, the new Campos payout law was not in effect, so you could not have known that this specific new legislation would arise and impact your business.

In the example no thanks gave you, the lease was signed in 2014. What is unclear to me is whether this relocation factor changes every year or now. Good point about this being a new law, but I honestly don’t think it is terribly onerous. If one really wants to get out of the business of being a landlord in San Francisco, you can always just sell your property.

“My property has appreciated more than 100% in the last 10 years, no one should feel sorry for me”

So I suppose that everyone who owns property in SF should feel it appropriate to have their taxes raised significantly to help low income residents to remain in the city? Make housing the responsibility of all, not a select few with no friends in city hall.

No one has discussed the tax implications of these payments. I would think that as the property owner these payments would be an expense on my taxes. The payments would have to be reported to the IRS and be taxable income to the tenant.

With the new Ellis extortion fee, one would expect much higher numbers from now on.

My reasoning: for the Landlord, the worst case scenario is an Ellis. This would cost 100K+++ In addition the property cannot be rented for years and if converted to TICs the units cannot be converted. There’s a cost associated, which is why you bought out the tenant. I think the future payments will typically start at 150K going into the 200Ks easily.

^ Congratulations to you. But, you are unique in the sense that your property is in Pacific Heights where you can command those kinds of market rents. What about those in the lesser, moderate, blue-collar neighborhood? Also, think about the $120K you could have spent on improving or remodeling your home, instead of rewarding a long-term tenant with a win fall.

If SF expects landlords to subsidize tenants beyond their tenancy, then at the very minimum they should make a fair set of rules on both sides. Rather than an arbitrary date that defines a rent controlled building, tenants who receive rent control should have to qualify with income as well as job location inside SF. That would serve the purpose of rent control laws and make sure the appropriate group of people are getting the housing.

Thanks, Jim. I don’t know who’s the biggest voice in the renter community, but it seems to me if there’s any ounce of reasonableness, this is an idea that could benefit both SF landlords and tenants, on top of pulling us one tiny step away from the brink.

Sadly, that seems to be something that was abandoned long ago. A “reasonable” solution would be to allow for rent increases to equal, or slightly exceed, the CPI and for property owners to have some ability to recapture their property. Unfortunately, SF rent control is based upon the concept of owners=greedy and tenants=victims.

The payment shouldn’t be in a lump sum. If we as the property owner have to subsidize the tenant for 24 months, then we should have to pay the tenant’s new landlord the difference. Tenants should not be permitted to leave the neighborhood they have lived in because the new law says the rent differential is based on the neighborhood.

This is a good point. Under the curent rules, ALL tenants have to play the “I am too sick / too old / too much part of the community” game. Then there’s a buyout and they show their true color – green.

One edifying example I like to quote is the Noe Street tenant, very last holdout of a 3-Unit building. The 2 others had left rather quietly, but he made a big fuss and the owners resorted to an Ellis eviction. He had the usual evictionfreesf roadshow showing at his doorstep, vowing to fight to the end. A few months later is enjoying 340 days of sunshine and dry weather with the buy-out cash he ended up collecting.

Thanks, mom. I think Fronzi illustrated an example of what was driving Campos. Campos is giving tenants a large lump sum amount that they can buy in a lower cost city. The Noe Street person went to Palm Springs. Campos’ law is going to provide a greater loss of renter population. Too bad for the progressive candidates that want to persue the tenant voting block. That block will hopefully be a minority before too long.

I don’t usually comment on these posts because the topics are so divisive, but sometimes I feel like I’m taking crazy pills when I read what’s going on (both articles and comments). This whole free market versus government regulations argument should be tossed out the window. Let’s be honest, the way the real world works is never like an Econ 101 class. On the other side of things, you can never regulate the market to a halt – the market always exists. New laws simply effect where/how people are spending their money to make a profit (capitalism). The question is whether the current and upcoming laws are supporting good or bad market forces. In my opinion, this is some of what we see today:

1.) Extreme conflict between landlords and tenants.
2.) Market leaning highly towards short term gains instead of long term hold.
3.) Extreme greed (from both landlords and tenants) where landlords ALWAYS seek to get maximum rents (or else bail through short term exit) and tenants are seeking to maximize payouts. We’ve totally lost the middle ground!
4.) A VACANT building is worth more than an occupied one! This is completely counterintuitive to other apartment building markets, where it’s the income that supports the value of the building. Go to any bank appraiser and ask them how they evaluate an apartment complex – it’s not the way buyers are doing it in SF.
5.) The ideal renter now in San Francisco is limited to a shorter term, single, young professional, who will likely move in a year or two. Most other places, as a landlord, you WANT great long term tenants!

These new laws coming out are essentially a “chinese finger trap” – you know, that thing where the harder you try to pull your fingers apart the tighter it gets? This is the perfect example. On the surface, tenants may think that getting the upfront payment is great – on an individual level that’s true. But you know, the only owners who can afford those high five to six figure amounts are flippers. You usually can’t afford that if you plan on holding onto a building long term – the numbers make no sense! And so a law that may seem beneficial to tenants on the surface, is actually creating a market that encourages investors to become short term thinkers, thereby increasing the extremes of the aforementioned problems.

Never happen. Anything that reduces the size of the renter community will not be tolerated by the “progressives.” That is why they will not consider means-testing for rent control: it would remove the richest rent control beneficiaries, just the ones most likely to contribute to a campaign.

Conifer, I do take your point. Certainly, all this talk in either direction is nearly impossible to implement in San Francisco due to politics. It just points to the whole hypocrisy of the situation, since I doubt the rent control laws as they exist today are really fully benefitting the people they were intended to.

I have wondered though if there is a larger legal case that could be made against the City in regards to how rent control has been implemented. After all, the city itself requires at least income verification for their own subsidized housing, so they are in essence holding private citizens (landlords) to a completely different standard.

Also, the politicians are the main beneficiaries of the landlord versus tenant B.S. They use the built-in anger and divisiveness to fire up their campaigns and get donations. This entire foolhardy Ellis Act relocation law is basically Campos’ attempt to gain the Assembly seat.

The San Francisco Rent Control laws have basically taken my units and converted them to low cost housing. The City has implemented laws to act as Eminent Domain to convert my units to low cost housing without compensating me as it is required by law for the taking of my property.

You still own your units which means there’s still a way to get back in the driver seat.

If you have deep enough pockets, you can make it work. It all starts with a tenansectomy which is the trickiest part. Hire a good lawyer already used to these deals and always follow his legal and strategic advice. There are many ways to screw this up. Ego is usually on the top of the list.

After the tenants are gone, the quickest bucks are TICs. Easy cash out, the buyers will not care too much about the former tenant issues. Even an Ellis does not remove that much value, since most TIC buyers simply want a place to live in. Expect a sizable discount for the TIC sale though, variable depending on many factors.

If you still want to collect income, then you can do 30days+ airbnb. But an Ellis will redflag your property for a number of years for any type of rentals. You’ll have to leave your place empty for that duration. That’s a huge loss of revenue.

In any case, you have a diamond in the rough. It’s up to you to make it shine!

Now that SF’s city government is going to quantify the exact benefit of the rent control subsidy in dollar terms … each landlord can send their tenants a 1099 for the “imputed income” that they received via the subsidy, and take a tax credit of an equal amount each year. So the landlord takes a credit for their lost income and the tenant pays taxes on it.

Now THIS is a stroke of genius. Imagine if every landlord did that. The HOWLS of protest from tenants to repeal the new law would be heard for miles! EVEN IF IT WERE OVERTURNED LATER BY THE IRS, YEARS OF LITIGATION would be required to determine the legality of this maneuver, and the short-term impact would be a devastating blow to renters and their support for rent control would plummet.

This is the sort off collective action that landlords in SF should take to finally crush the tenants and rent-control once and for all! Divided, they fall.

I’m not sure I would actually claim the tax credit. I might pay anyway and carry forward the credit until the litigation was resolved, just to cover my bases. But if it were done collectively, you could really change the landscape in SF.

The IRS makes abundantly clear that if one person ‘gives’ another a place to live (like a live-in property manager) the provision of the service (a dwelling) counts as compensation and is a tax write-off (expense) to the provider and taxable income to the recipient. The standard is for an employer/employee relationship, but if one is providing a subsidy to another under a written contract, it seems logical she should be issuing 1099’s to rent controlled tenants and taking those values as current year tax expenses.

This may work, but it is unlikely. Initially, this is not “imputed income” which, by definition, is not taxable or “real” income (e.g. if you cut your own lawn, you have earned “imputed income” in the amount you would have paid someone to do it — this is not taxable income). This rent subsidy, so goes the argument, is real, taxable income. Regardless, it would be extremely risky. Fortunately, it would be very easy to tee-up. Simply request a PLR (private letter ruling) from the IRS. Ask whether you can, or even must, send a 1099 to your rent-controlled tenant for the “income” subsidy you are providing as required by local law. Say that you want to ensure that you are in compliance with income-reporting requirements, Obamacare, etc. And ask whether you can, or should, record a corresponding expense. The IRS will respond with its position on this, and that will protect you should they give the green light.

I’m not a tax expert but fall into the category of “know a lot about it.” Here is my view:

If a landlord anywhere entered into a lease with a tenant that was below “market’ he could not send a 1099 to the tenant for the difference nor claim it as an expense. Obvious, right? Even if the only thing keeping him from booting the tenant and/or jacking up the rent during the lease term are state contract laws.

Similarly, with RC, the tenant has a contract, enforceable by state law in state courts, so nothing is different. It doesn’t matter that the landlord claims “but I would raise the rent if not for this cursed RC law!” The landlord above says the same thing “but I would raise the rent if not for this cursed contract law.”

In addition, it is a federal crime to send a false 1099 – want to risk prison time for this cool statement? And the victim, the tenant, has a right to sue and to receive not less than $5000 (plus legal fees) from anyone who files a false 1099 – there is the litigation that will ensue; again, not quite the collective action statement envisioned here. A bad idea IMHO. Makes no difference whether anyone has quantified anything in advance. But you don’t need to take my word for it. Get an IRS opinion. Not that difficult or expensive.

Landlords with RC tenants voluntarily entered into a tenancy agreement. They might now want to change it, but that does not re-write history. In Case #1, the landlord also now wants to change the terms of the tenancy so it is equally “involuntary.” I suppose you might be able to draw some distinction if you have a tenant that was there under a non-RC lease before 1978 and had RC imposed on you ex post facto. But no way the IRS is going to permit you to expense the “market difference” and 1099-MISC the tenant in either case.

This could help current landlords to keep up with market rents, but this would do nothing to fix what’s currently broken: for one unit a tenant can pay $1 where his neighbor with a similar unit will pay $5. I have seen people hogging 5BRs they were paying $750/month. Sometimes hoarders will be in very large places and have piles of junk where actual human beings were supposed to live. I saw this woman who was collecting cuckoo clocks in a pretty large bedroom. She paid a miser for rent. With kids having to pile up student debt by the 10,000s because they can’t find anything affordable, these situations make me want to throw up.

There may be some extreme cases, but according to the US Census 2012, for rent controlled units in SF:
– less than 5% tenants moved in before 1980 (about 8,000 units)
– more than 70% tenants moved in 2000 or later

By contrast, for owner-occupied units in SF nearly 20% occupied since before 1980 (about 24,200 units). And that is just owner-occupancy, it does not count the owners that have owned but not occupied. They all got and continue to receive a huge windfall from the Prop 13 tax cut.

If anyone wants to look this up, Table S2502 DEMOGRAPHIC CHARACTERISTICS FOR OCCUPIED HOUSING UNITS, 2012 American Community Survey 1-Year Estimates. Also, adjust based on 170k rent controlled units estimated by the rent board of the 222k total rental units estimated by the Census.

Rent of a 2/1 apartment in 2000: 1300/month.
Rent of a 2/1 apartment in 2014: 2900/month

Adjusted for the allowable increase, this means that 30% of all tenants (who started to rent before 2000) is paying less than 1/2 of market rate. Extrapolating to 2011 when rents really took off, we have an overwhelming majority of tenants paying less than market rate.

For owners, I agree there’s a sizable handout. But it is only on the property tax, NOT on the value. Someone buying a 2/1 in SF today will have a $8000/year tax bill, and this is the maximum amount of the handout per prop 13.
Prop 13 is counter productive and should go. So does rent control.

Well, a 2/1 did not rent for 1300/mo in 2000 in any decent neighborhood either. That’s when we bought our former place, and we looked to rent before buying. Going rate in 2000 for a decent 1BR in the Mission, Noe Valley, Castro was $1500. 2Br went for closer to $2000/mo. (Rents dropped quite a bit by 2002 until about 2007). So perhaps lol’s numbers should be 2000: $2000, 2014: $3500

Assuming 2100 was the typical price for a 2/1. From what I recall it was not. But I am always confronted with people with higher standards than me who will not consider anything outside their comfort zone.

So someone who stayed in his 2000 RC apartment til now pays about 75% of market rent, it appears. That’s 14 years, and still gets “only” a 25% discount. Not saying that isn’t still a sizable private subsidy, but it is good to work with solid numbers rather than hypothetical extremes (“I know of an old lady who lives in a 5BR place in Pac Heights and pays $750 and uses 4 of the BR to hoard owl tchotchkes”!)

This is all just talk in any event. RC is not going anywhere. Neither is Prop 13. On these points, this board has hashed things out pretty intelligently, but this is just a debating society. I don’t like either of these laws, but life is too short to grouse about things that aren’t going anywhere. May as well spend your time complaining about the weather. If the mayor doesn’t do something about the fog in the Sunset, I’m going to demand a recall, I tell ya, or send him a 1099 for the income I’m losing in my Irving St. swimwear shop.

I agree it is an exercise in futility if you think rational thinking cannot influence policy. Rent control is irrational since it does not do even the most basic means testing. It is irrational since it picks a class of citizen who have very little to do with affordability and punishes them for something they cannot really control (it’s the market, stupid). And it gives the proceeds to another class of citizen who just happen to have made a random choice. I think it’s worth repeating again and again why RC is very often counter-productive and in a few cases somewhat destructive. We can’t do anything about the fog, but we can most certainly vote.

Apparently trial set for October 6th. Pre-trial conference was last Friday. City has been ordered by the presiding judge as follows:

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
LEVIN et al.,
Plaintiffs,
v.
CITY AND COUNTY OF SAN FRANCISCO,
Defendant. /
No. C14-03352 CRB
ORDER
The Defendant is ordered to file an electronic copy of the complete legislative history
of the Mitigation Ordinance, including both the 2005 legislation, San Francisco Admin.
Code, Ch. 37, § 37.9A(e)(3), and the 2014 legislation, id. § 37.9A(e)(3)(E)(ii) no later than
August 29, 2014.